IN MY VIEW: Anti-Smoking Groups Need to Re-Think Their Knee-Jerk Support for Cigarette Tax Increases

These Policies are Not a Win-Win-Win Proposition; They are Demonstrably Regressive, May Increase Health Disparities, and May Have a Disproportionate Negative Impact on the Poor

In the face of widespread budget crises and a severe recession, many state governments are considering the use of cigarette taxes as a primary means to raise much-needed revenue and to balance their budgets. But because smoking prevalence is higher among lower-income Americans and cigarette taxes therefore make up a more significant proportion of their income, there are concerns that cigarette taxes are regressive and may disproportionately harm the poorest of Americans.

This dilemma is highlighted in an article published last week in the Christian Science Monitor, which introduces the problem as follows: "High cigarette taxes curtail smoking and reduce the habit's societal costs. But they also take a big bite out of the earnings of America's poor, who smoke cigarettes at nearly twice the rate of the average American. That's the paradox of the new 62-cent federal tax on tobacco, a historic hike that puts the average pack of smokes at $4.80 – $3.10 of which is taxes. ... What differentiates this tax hike from previous efforts is that it's the largest one yet that doesn't contribute at least some funds to helping people quit. And it comes at a time when many cash-strapped states are cutting such programs."

In the article, one side of the issue is presented by Jim Sherman, a psychology professor at Indiana University: "...if you want to look at the impact on different segments of the population, you might want to consider who's going to be hit the most. And it's true that [regressive taxes like those on tobacco] hit lower-income populations the most."

The other side is presented by the Campaign for Tobacco-Free Kids, which argues that: "Most legislatures realize that it's a win-win-win. It's a win for health reasons, it's a win when it comes to state finances, and it's a win with the voters." In the article, the Campaign for Tobacco-Free Kids estimates that the recent federal cigarette tax increase will cause 1 million smokers to quit.

One possible justification for increased cigarette taxes despite its regressive nature is that if revenues are allocated specifically to help smokers (such as for cessation programs or for research into or treatment of smoking-related diseases), then the benefits as well as the costs of the tax accrue disproportionately to smokers, making the policy a fair one.

However, the recent federal cigarette tax increase and most of the proposed state cigarette tax increases are not slated to allocate revenue that will benefit smokers. The federal tax revenue is allocated entirely to children's health insurance and the state proposals allocate revenues for the purpose of balancing state budgets, not funding expanded tobacco cessation or smoking-related disease research and treatment programs. Thus, one of the major arguments that might otherwise justify these policies has been eliminated.

The remaining mainstay of anti-smoking groups' arguments in support of cigarette taxes, despite their regressive nature, is that although the tax weighs disproportionately on smokers, it will also affect their smoking behavior disproportionately, leading to increased quitting among lower-income smokers. In this way, the benefits of the tax increase accrue disproportionately to lower-income groups, thus negating the problem of the regressive nature of the tax.

For example, the Centers for Disease Control and Prevention is quoted in the article as arguing that: "When you take a look at poor smokers, yes, some of them will continue to smoke and carry a higher burden in taxes and price. But most of them will either quit or decrease the amount they smoke."

The Rest of the Story

Unfortunately, the arguments that lower-income smokers are more responsive to cigarette price increases and that a large proportion of these smokers will quit in the face of large price increases are largely based on data that are 20 years old, on cohorts of smokers in the past which are different from today's smokers, and on situations in which the underlying price of cigarettes was considerably lower than it is today. For example, many of these studies were conducted when cigarettes were in the range of $1.50 to $2.50 per pack, while the average price of a pack of cigarettes was reported as being $4.45 two years ago and is certainly well above $5.00 per pack today.

More recent studies that are based on more realistic and applicable price scenarios have found that the overall influence of price on cigarette smoking is considerably smaller than the assumptions being used by anti-smoking groups which are supporting these tax increases, that there is not credible evidence that these taxes affect lower-income smokers more than higher-income smokers, and that the primary effect of cigarette tax increases appears to be on lowering consumption, not stimulating smoking cessation.

For example, in a study published in the American Journal of Public Health in 2007, Franks et al. examined the relationship between cigarette price and smoking participation (smoking prevalence) both before and after the Master Settlement Agreement (MSA). The authors found that prior to the MSA, the price elasticity estimates were similar to those reported in the past and that lower-income groups were more sensitive to price increases. For lower-income groups, the price elasticity for smoking participation was -0.45 compared to -0.22 for higher-income groups. However, post-MSA, the price elasticity for smoking participation was not statistically significant for either group (-0.14 for low-income groups and -0.07 for higher-income groups).

The authors conclude that while in the past, cigarette price increases were associated with significant declines in smoking prevalence, that may not be true anymore: "Our findings, which are based on analyses of nationally representative data collected before and after the 1998 MSA, suggest a dramatic decline in the effect of cigarette pack prices on smoking participation in both lower and higher-income individuals. These findings, in turn, suggest that cigarette excise taxation may have become an ineffectual public health tobacco-control policy in the post-MSA era."

The authors also concluded that at the present time (as opposed to historically), increasing cigarette prices through taxation is a regressive measure that is likely to enhance income-based disparities in smoking prevalence: "The evidence suggests that increasing cigarette pack prices have not substantially contributed to reduction in disparities in smoking participation. Disparities may have increased as pack prices have increased. That the price of a product has risen despite an overall decline in demand for that product suggests that tobacco companies are responding, in part, to the demand from a remaining group of smokers who are price insensitive, probably because of addiction. This price-resistant group seems disproportionately concentrated among low-income persons. We believe that further significant increases in cigarette tax are likely to aggravate continuing inequities in our society, and through the economic burden associated with continued smoking participation of low-income persons, may result in other adverse health consequences."

An even more recent article published this year in the Journal of Health Economics revisited the issue of the price elasticity of demand for cigarettes among different education and income groups, using data from Canada, where cigarette prices were as high as six to seven dollars per pack. In this study, Gospodinov and Irvine found that there was no significant effect of cigarette price on smoking participation (i.e., smoking prevalence). They did find an effect on cigarette consumption, but the overall price elasticity of demand was -0.3 (lower than the level being assumed by anti-smoking groups from past data) and there was no evidence that lower-income or less educated smokers are more price sensitive than their counterparts.

These authors conclude: "Our primary conclusion is that there is little to suggest from our data that the traditional regressivity perspective on tobacco taxes can be overturned, and that there is therefore little hope that such tax increases may really benefit low socioeconomic groups, or disadvantage them to a lesser degree than high socioeconomic groups. In contrast to virtually all of the extant literature, our estimates are based on data where prices are closer to what might reasonably considered an ‘optimal’ range. ... On the policy front this suggests that the search for an implementable ‘optimal’ (i.e. very high) price for tobacco may simply not be feasible in most jurisdictions, and that once prices reach the $7–$8 range, alternative policy instruments such as smoking bans may provide more fruitful avenues of approach."

In a third recent article (2008) published in the Journal of Economics and Finance, Goel examines the influence of cigarette price on smoking participation overall and among various socioeconomic subgroups. He finds that price is not a significant determinant of smoking prevalence overall, and when examined by educational level, price was only significant for the most highly educated group (those with a college education), not for those with a high school or less than a high school education. Price was also not a significant predictor of smoking participation for either higher or lower-income groups. The authors conclude that: "non-price smoking policies are relatively more effective than price or tax policies and that these policies are becoming more effective as the population begins to age."

In a letter to the editor published in the American Journal of Public Health in 2008 entitled "Tobacco taxes and cigarette consumption in low income populations," David Ahrens of the Population Health Institute, University of Wisconsin, Madison argues that tobacco control groups should re-think their automatic support for increased cigarette taxes because the evidence shows that the primary effect of these taxes for the overwhelming majority of low-income cigarette smokers will be further impoverishment, rather than smoking cessation. Ahrens writes: "The Center for Tobacco Free Kids, an advocate of higher tobacco taxes, estimates that only 3% of the Master Settlement Agreement and tobacco excise taxes is used for tobacco control. Inclusion of the additional $7 billion from the federal excise tax would diminish the proportion spent on tobacco control to 2%. Furthermore, only a fraction of those funds are used to assist low-income smokers to help quit smoking. For tens of millions of smokers who want to quit, poorly funded tobacco control programs offer little assistance. Unfortunately, many of these same programs advocate for tobacco taxes under the misguided notion that high prices will economically coerce poor smokers to quit. If we are to believe our own science, that smoking is addictive, we must recognize the extent to which the primary result of highly priced tobacco products further impoverish a substantial portion of low-income tobacco users. This should be as much of a concern of public health advocates as the ongoing tobacco epidemic among the lower classes."

In light of these more recent data, I think anti-smoking groups need to rethink their knee-jerk support for policies by which cigarette tax increases are used to balance budgets and fund critical government programs that are not directly related to smoking. The underlying assumptions being used to justify these policies may no longer be true. It does not appear, for example, that lower-income smokers are more responsive to price increases than higher-income smokers. Nor does it appear that price increases will necessarily lead to substantial smoking cessation.

The reality is that for the majority of lower-income smokers, tax increases will result not in smoking cessation, but in continued smoking at a greater expense and at a higher proportion of overall income. This may have adverse consequences -- and even adverse health consequences -- and may be particularly problematic for the families and children of lower-income smokers, who may actually suffer as a result of these policies.

I should also hasten to point out that there are additional reasons why using cigarette tax increases to balance the federal and state budgets is poor public health policy. First, these policies make essential government programs dependent upon continued high levels of cigarette consumption for their solvency. Second, they create a financial partnership between the states or the federal government and Big Tobacco. Third, they reduce (if not eliminate) the incentive for Congress or state legislatures to enact any policy that would actually make a serious dent in smoking prevalence, because such policies would severely harm the budget, which (now) relies upon cigarette sales to fund its most essential programs and services.

I believe that anti-smoking groups should discontinue their support for any cigarette tax increases in which the revenues are not being allocated to directly benefit smokers - such as providing funding for smoking cessation programs, research into better treatments for smoking-related diseases, and treatment of smoking-related diseases.

Contrary to the long-standing dogma in the movement, these are not win-win-win propositions. There is a win, but unless the policy is properly crafted, that win comes at the expense of a number of losses: regressivity, lack of fairness, increased burdens upon lower-income populations, increasing health disparities, a government dependence upon continued cigarette consumption to fund critical programs, an unhealthy fiscal partnership between the states and Big Tobacco, and the elimination of any incentive to enact meaningful tobacco policies that would actually make a serious dent in smoking prevalence. The cigarette tax policies may actually be making it more difficult - if not impossible - for the more effective non-price policies to be implemented.


(Many thanks to David Ahrens of the Population Health Institute at the University of Wisconsin for providing data and critical insights that helped shape this commentary).